iSPIRT works to transform India into a hub for new generation software products, by addressing crucial government policy, creating market catalysts and grow the maturity of product entrepreneurs. Welcome to the Official Blog!

Tag: saas

Since SaaSx second edition, I have never missed a single edition of SaaSx. The 5th edition – SaaSx was recently held on the 7th of July, and the learnings and experiences were much different from the previous three that I had attended.

One primary topic this year was bootstrapping, and none other than Sridhar Vembu, the CEO and Founder of Zoho, was presenting. The session was extremely relevant and impactful, more so for us because we too are a bootstrapped organisation. Every two months of our 4.5 year-long bootstrapped journey, we have questioned ourselves on whether we have even got it right! If we should go ahead and raise funds. Sridhar’s session genuinely helped us know and understand our answers.

However, as I delved deeper, I realised that the bigger picture that Sridhar was making us aware of was the entrepreneurial journey of self-discovery. His session was an earnest attempt to promote deep thinking and self-reflection amongst all of us. He questioned basic assumptions and systematically dismantled the traditional notions around entrepreneurship. Using Zoho as an example, he showed how thinking from first principles helped them become successful as a global SaaS leader.

What is it that drives an entrepreneur? Is it the pursuit of materialistic goals or the passion to achieve a bigger purpose? The first step is to have this clarity in mind, as this can be critical in defining the direction your business would take. Through these questions, Sridhar showed that business decisions are not just driven by external factors but by internal as well.

For example, why should you chase high growth numbers? As per him, the first step to bootstrapping is survival. The top 5 goals for any startup should be Survive, Survive, Survive, Survive, Survive. Survival is enough. Keep your costs low and make sure all your bills are paid on time. Cut your burn rate to the lowest. Zoho created 3 lines of business. The current SaaS software is their 3rd. They created these lines during their journey of survival and making ends meet.

Why go after a hot segment (with immense competition) instead of a niche one? If it’s hot, avoid it i.e. if a market segment is hot or expected to be hot, it will be heavily funded. It will most likely be difficult to compete as a bootstrapped organisation and is henceforth avoidable. Zoho released Zoho docs in 2007, but soon as he realized that Google and Microsoft had entered the space, he reoriented the vision of Zoho to stay focused on business productivity applications. Zoho docs continues to add value to Zoho One, but the prime focus is on Applications from HR, Finance, Support, Sales & Marketing and Project Management. Bootstrapping works best if you find a niche, but not so small that it hardly exists. You will hardly have cut throat competition in the niche market and will be able to compete even without heavy funding.

Most SaaS companies raise funds for customer acquisition. Even as a bootstrapped company customer acquisition is important. As you don’t have the money, you will need to optimise your marketing spend. Try and find a cheaper channel first and use these as your primary channel of acquisition. Once you have revenue from the these channels, you can start investing in the more expensive one. By this time you will also have data on your life time value and will be able to take better decisions.

Similarly, why base yourself out of a tier 1 city instead of tier 2 cities (with talent abound)? You don’t need to be in a Bangalore, Pune, or a Mumbai to build a successful product. According to Sridhar, if he wanted to start again, he would go to a smaller city like Raipur. Being in an expensive location will ends up burning your ‘meager monies’ faster. This doesn’t mean that being in the top IT cities of India is bad for your business, but if your team is located in one of the smaller cities, do not worry. You can still make it your competitive advantage.

Self-discipline is of utmost importance for a bootstrapped company. In fact, to bootstrap successfully, you need to ensure self-discipline in spends, team management, customer follow-ups, etc. While bootstrapping can demand frugality and self-discipline, the supply of money from your VC has the potential to destroy the most staunchly disciplined entrepreneurs as well. Watch out!

And last but not the least – It takes time to build something successful. It took Zoho 20 years to make it look like an overnight success.

This is a Guest post by Krupesh Bhat (LegalDesk) and Ujjwal Trivedi (Artoo).

AI is seen as the new electricity that will power the future. How do we make the best of the opportunity that advancements in AI technology brings about? With this thought in mind iSPIRT conducted a symposium roundtable at the Accel Partners premises in Bengaluru on March 10th. Accel’s Sattva room was a comfortable space for 20+ participants from 11 startups. There were deep discussions and a lot of learning happened through subject matter experts as well as peers discussion. Here’s a quick collection of some pearls, that some of us could pick, from the ocean of the deep discussions that happened there.

Products that do not use AI will die soon. Products that use AI without natural intelligence (read common sense) will die sooner.

– Manish Singhal, Pi Ventures

Starting with that pretext, it isn’t hard to gather that AI is not just a promising technology, it is going to be an integral part of our lives in near future. So, what does it mean for existing products? Should everyone start focusing on how they can use AI? Are you an AI-first company? If not, do you need to be one? After all, it does not make sense to build the tech just because it appears to be the next cool thing to do. If you are building AI, can you tell your value proposition without mentioning the word AI or ML? have you figured out your data strategy? Is the need driven by the market or the product?

Before we seek answers we must clarify that there are two types of products/startups in the AI world:

First, an AI-first startup – a startup which cannot exist without AI. Their solution and business model is completely dependent on use of Artificial intelligence (or Machine Learning at least). Some examples of such startups in local ecosystem are Artifacia and Locus.sh.

Second, AI-enabled startup – startups with existing products or new products which can leverage AI to enhance their offering by a significant amount (5x/10x anyone?). Manish has a very nifty way of showing the AI maturity of such companies.

Maturity Levels of AI Startups

After a brief introduction by Chintan to set the direction and general agenda for the afternoon, Manish took over and talked about the various stages of AI based companies. Based on his interactions with many startups in the space, he said there are roughly four growth stages where different companies fall into:

Level 1 – No Data, No AI: An entity that solves a business problem and is yet to collect sufficient data to build a sustainable AI business. The AI idea will die down if the company fails to move to state 2 quickly. Business may be capturing data but not storing it.Level 2 – Dark data, No AI: The company holds data but is yet to build solid AI/ML capabilities to become an AI company. There is a huge upside for such companies but the data strategy needs to be developed and AI capabilities are not mature enough to be considered as an AI/ML company.Level 3 – Higher automation driven by data and AI: These are the companies that have built AI to make sense out of data and provide valuable insights into the data using AI/ML, possibly with some kind of human assistance.Level 4 – Fully autonomous AI companies: These are the companies at the matured stage where they possess AI products that can run autonomously with no human intervention.

Manish also noted that most companies they meet as a VC are in level 1 and 2, while the ideal level would be 3 and 4. He noted that AI comprises of three important components: Data, Algorithm & the Rest of the System that includes UI, API & other software to support the entire system. While it is important to work on all three components, oftentimes, the data part doesn’t get enough importance.

Do You Really Need Artificial Intelligence?

A whole bunch of solutions are smart because they are able to provide additional value based on past data. These are not AI solutions. They are merely rule based insights. Nishith from Locus added that there is nothing really wrong with rule based systems and in a lot of cases AI is actually an overkill. However, there are two cases where it seems apt for startups to look at AI for their predicament:

Data is incomplete: An example of this is Locus who gets limited mapping for gps coordinates and addresses.

Data is changing constantly: A typical case was of ShieldSquare where bots are continuously evolving and improving and the system deployed to identify them also needs to learn new patterns and evolve with them.

It is important to have clarity on your AI model especially when you communicate with your internal teams. Figure out what is the core component of your product – AI, ML, Deep Learning or Computer Vision.

What’s Driving Your AI Approach?

There are two major driving forces that can help one in deciding whether to AI or not to AI.

PUSH: The internal force when decision can largely be taken if your business is sitting on a lot of useful data, may be as a side effect of your key proposition.

PULL: The external market driven force where clients expect or ask for it e.g chatbots. We are already observing that AI can be a great pricing mechanism.

However, take great caution when using Customer data or Derived data, it depends on legal agreement with clients and can get you into legal troubles if it violates any terms.

Is Your Data Acquisition Strategy in Place?

Anyone interested in AI should have a data acquisition strategy in place. Here are a few points that can help you get one in place:

What data do you collect, How do you validate it, Clean it and store it for further analysis?

Surveys and chatbots can provide a steady stream of data if built correctly

Think of data as a separate entity (has its own lifecycle), it may help to think of it as a currency and plan how you would earn, store and utilise it

Capturing location, user interaction data can be insightful. This may include the interactions user has committed and the ones they have not committed (deleted/skipped/hidden)

It makes sense to invest time, resources and people to gather data properly

Have a unified warehouse (can start with economical options like Google Analytics and AWS)

It is also important to give some thoughts on how you are using aggregate data across the platform. In case, if your AI model uses a combination of customer specific data and the sanitised aggregate data available in the platform (“Derived Work”), then you should make sure that you have the permission to use such data. Without such clarity, you may run into legal issues.

Deepak Vincchi explained how Julia Computing is emerging as the programming language of choice for data scientists. The platform can process 1.3 million threads in parallel and is used by large organizations to crunch data problems.

In all this was an extremely engaging 3 hours without break. Guiding the session with real examples by Nishith, Shrikanth and also shared learnings from Navneet and others really helped bring to life Why AI and How AI. This symposium is part of an AI playbooks track was aimed at kickstarting cohorts of startups ready to jump with AI and help them get traction with AI, more will emerge on this shortly.

* All iSPIRT playbooks are pro-bono, closed room, founder-level, invite-only sessions. The only thing we require is a strong commitment to attend all sessions completely, to come prepared, to be open to learning & unlearning, and to share your context within a trusted environment. All key learnings are public goods & the sessions are governed by the Chatham House Rule.

Featured photo by Matan Segev from Pexels https://www.pexels.com/photo/action-android-device-electronics-595804/

What is GDPR you ask? and Why should you care?

Some of you may know about the upcoming rollout in EU of the General Data Protection Regulation. GDPR is a regulation that requires businesses to protect the personal data and privacy of EU citizens for transactions that occur within EU member states. GDPR implementation date is 25 May 2018, but do not get complacent by the date, it requires reasonable effort and time for companies to become ready & compliant. And there are significant penalties for not being compliant.

If you are operating in the EU or if any of your customers are operating in the EU, GDPR applies to you.

Who?

Customers in EU – YES

Employees in EU – YES

Vendors or partners in EU – YES

GDPR Workshop / Webinar

iSPIRT and Microsoft are conducting a GDPR workshop for founders to demystify the GDPR and help understand the steps required towards compliance. This will be a mix of in-person and webinar session (choose when you register).

The session will cover among many topics, clarity on the impact of GDPR, application to organizations in India, additional responsibility about controls, notifications and data governance for managing and tracking personal data, and how organizations need to start thinking about GDPR compliance. There will be presentations by both Legal teams from Microsoft India and the CTO of Microsoft Accelerator.

A Risk assessment Checklist – Go to https://www.gdprbenchmark.com/ to access a quick, online self-evaluation tool available at no cost to help your organization review its overall level of readiness to comply with the GDPR

Data Privacy Business Scenarios – Technical Demos

Registration

If you are keen to attend the workshop please apply using the Registration Form. Since seats are limited for both in-person and webinar, please register ahead of time. We will confirm with an invite subject to availability. There is no cost to attend. We start sharp at 3 pm.

Coming soon – 2017 SaaS Survey

BTW did you know the new SaaS survey is coming? We are excited to announce that we would be launching the third edition (2017) of the India SaaS Survey in a week from now. This survey is an annual exercise conducted jointly by SignalHill and iSPIRT to gather valuable data for drawing insights which help various stakeholders in the ecosystem understand this space better.

Please click on the following link to access last year’s survey results

Please stay tuned to this space. We will be providing a link to this year’s survey very soon in an upcoming blog post.

Product Teardown Roundtables are coming to your city.

Some SaaS ventures lead to category leadership while some lead to imaginary frozen quadrants. Here’s a little 2X2 to assess where you are in your journey to SaaS nirvana. When amazing products are sold in amazing ways, it produces the almost mystical flywheel effect.

Let’s dissect this.

Red: Weak Product and a Weak/Average Sales Team

This is a highly incremental quadrant where a single provider may be serving the exact needs of a handful of customers. It’s an equilibrium that doesn’t last too long. I’ll leave this quadrant at that.

This is a highly incremental quadrant where a single provider may be serving the exact needs of a handful of customers. It’s an equilibrium that doesn’t last too long. I’ll leave this quadrant at that.

Blue: Weak Product and a Strong Sales Team

When people say “that company is sales driven” this is what they are referring to. Founders of companies in this quadrant have a knack of story-telling and projecting a product market fit before a product is actually ready. What happens next is catastrophic. Sales drives the company’s culture, narrative and product building. Both product and engineering go into a wild-balancing act of fixing the problems while trying to add features in a near random fashion.

It is unsustainable. It bloats customer service and support and pre-sales. Lack of a strong product causes politicking and confusion and populism in every department, which leads to relationship-driven rather than value-proposition driven outcomes. Unless a startup iterates on product rapidly or brings in a disciplined and creative leader, there’s a significant risk of revenues plateauing at $5m-$10m mark.

So why is it blue? Because it is fairly cushioned for a while though sales > everything is bad karma.

Yellow: Strong Product and a Weak/Average Sales Team

This quadrant probably causes hackers amongst us the most heartburn. A lot of strong products start with nobody focused on sales. They continue to write amazing code, design amazing screens, and setup amazing data pipelines, but they just don’t know how to position, craft a story people remember, distinguish themselves from 99 other guys who may have had the same idea. Many product founders suck at sales and often hires the first person who blinks.

Even for successful startups, this can be a transient stage, but successful founders realize their mistakes and then quickly hire a sales leader and move to the next quadrant. The good news if you’re yellow is that just like in real life, you can cross the traffic light before too much damage happens.

Green: Strong Product and Strong Sales Team

This is jazz improvisation zone. You can have a strong product and sales culture. It all starts with respect for both and it certainly involves finding the right talent that can craft what really works uniquely for you.

That’s why very few founders get there. A scalable sales model is crucial. A product alone can take you so far. For every Dheeraj Pandeyringing the IPO bell, there’s a Sudheesh Nair driving the quota home. For every Jyoti Bansal getting acquired at $3.7bn, there’s a Dali Rajic digging into sales capacity, and for every Jason Lemkin, there’s a Brendon Cassidy. When phenomenal founders and product builders pair up with their sales counterparts, that accomplish that sight to behold – a startup on a flywheel across the sky.

In each of these cases, the sales counterparts were able to hit their targets, because of a product which was able to either create demand or was superior to incumbents. If there was a product market fit, based on the narrative, the product scaled to bring in a perpetual stream of renewals and sources of new revenue.

Hopping in the 2×2

I hope you’ve found your color by this point. So how do we transition from a shitty part of the quadrant to an awesome one?

If you are Blue or Yellow, scale to Green quick. Here are some things that increase your chances in a hop

Listen to early feedback from customers and employees and suppliers. Setup key feedback loops

Iterate the product every week, every day, every hour. Continuous Beta. A living element.

A recent article by Andy Mukherjee, predicting the end of India’s IT industry has caused lot of commotion. Though, the ‘end’ is an exaggeration, the warning of the ground slipping is not new. The declining growth is owing to the rapid transformation in technology and Software Industry itself, globally.

The first Software policy of 1986, resulted into Software Technology Park (STP) scheme in 1991. Undoubtedly, the policy was highly successful with IT industry today accounting more than 9 % of GDP.

Despite diminishing growth, even after 25 years, old Software policy (1.0) of 1986 still prevails, with focus on IT services. A reworked IT policy 2012, is generic, remained redundant with no meaningful churn out for new age Industry.

Failure to capitalize on the capability built in last quarter century can have serious consequences. The onus lies with Ministry of Electronics and IT (MeitY). However, MeitY seems to be missing on following four issues.

One, Software is core, not IT enabled Services (ITeS). Two, not able to gauge the shift in fundamental industry structure globally from ‘services’ to ‘products’ and also ‘cloud’ based products. Three, not able to appreciate ‘national competitive advantage’ has moved up the maturity curve to ‘Innovation stage’. Four, a phlegmatic approach resisting shifting gears swiftly.

To address these strategic paradigm shifts, a Software 2.0 policy is needed with ‘product’ as focal to it. We are at least 5 years late in our action here. Let us delve here into the four issues and related actionable.

Software is the focal sector in IT

It is important to understand here, that the genesis of today’s IT Industry was ‘Software’. The empirical evidence highlights real horse power coming from Software. IT enabled services (ITeS) is a derivative or related sector that grew through a ‘pull through’ effect of various related determinants (R. Heeks 2006). This is true even when we cut through the industry’s maturity stages. The ‘core’ has to be energised for new paradigm.

The only subtle difference which remains is, whether a ‘product’ is sold to the end-user as ‘goods’ or a ‘product’ is hosted by SaaS or PaaS producer to provision the ‘productised service’. Even IT services business now hinges at standardised ‘products’ for revenues.

Shifting National Competitive advantage

For about a decade no one believed that Software policy 1.0 could make India a super star in Software sector. It is only after about a decade, researchers recognized that India, a developing country could become a follower nation in Software sector. This was in sharp contrast to other 2 rising countries in same period of late 1980s i.e. Israel and Ireland, who were ascribed as Industrialized nation by world bank even in that period among the 3Is.

Usually academic researchers have not been very successful in predicting or prescribing favourable industrial policy for a country. But, they have played an important role when we apply an established research for analysing a sector’s performance and understanding the needed strategic shift.

Also, the classical economics models of ‘comparative advantage’ do not fit well for a sector like Software which is replete with advanced factor conditions.

The most comprehensive model to deep delve into this search is Michael Porter’s theory of competitive advantage (The Competitive Advantage of Nations, 1990). It goes beyond the macroeconomic theories on competitiveness and also incorporates the aspects of business and industry with advanced factors such as technology & innovation. The “diamond” model is based on four main determinant categories viz. factor conditions, demand conditions, Related and Supporting Industries and Firm Strategy, Structure, and Rivalry. It also incorporates and interlinks two extra parameters of a) chance and b) Government policy. For India both these played a vital role.

The national competitive advantage is based on the advanced level interplay of these determinants in the above diamond, network.

The model may lack in taking into account the new emerging factors of cloud and mobility computing. Yet, it offers a comprehensive and advanced postulation that can help understand the sectoral impacts.

Richard Heeks (2006), using this model concluded the competitiveness of Software sector of India. So also Bhattacharjee and Chakraborty (2015), further building on Heeks study. Richard Heeks (2006) says, “full diamond is not (yet) in place”. Whereas Bhattacharjee and Chakraborty (2015), recognize the full diamond in place. (Please see reference below at bottom)

Going beyond famous diamond model, the stages of development as postulated by Porter are more relevant to understand our readiness for ‘product’ stage. The stages in order are ‘factor driven’, ‘investment driven’ and ‘innovation driven’ (the last wealth creation points decline). R. Heeks (2006) finds ‘Investment driven’ stage in 2006. Bhattacharjee and Chakraborty finds ‘innovation’ having swept in the period 2012-2015.

“Govt. helping improve the quality of domestic demand and encouraging local startups” is representative of ‘innovation’ stage, says Heeks (2006). One can easily map here, the conditions arising to launch of StartupIndia policy 2015 and other accompanying developments.

Yet another symptom of ‘innovation driven’ stage is the domestic demand conditions undergoing a rapid change. ‘Digital India’, GST and UPI are not only concurrent, country scale demand generation programs, but also innovation boosters in domestic industry.

Porters, argues for a proactive role for cluster in National competitive advantage. The clusters enable innovation and speed productivity growth. The Silicon Valley and Israel’s Silicon Wadi are clusters that contribute to regional growth as well as making them as global brand. India has a distributed cluster model spread across various Tier 1, Tier 2 and Tier 3 cities. Bangalore, Hyderabad, Pune, Delhi NCR and Chennai being prominent.

India has enriched these clusters in the investment phase recognized by both the referred researches above.

In India, a mass of new age Software product startups has emerged touching wide array of industries. Advanced and specialized factor resources are emanating from the Software product development happening in the captive offshore center, R&D centers of MNCs or by outsourced product development (OPD) vendors, across all major IT cluster in country.

India therefore is poised for a phase 2 of Software Industry this time with product focus.

Emerging SaaS segment has global reach

SaaS can be the next game changer for India. The national competitive advantage can be capitalized for creating a SaaS industry, and puts India in first three slot on global map.

Many Software as a Service (SaaS) companies like Zoho, Freshdesk are already global market place names, pitching for leadership in their own segments. It proves the power of SaaS to give edge in exports.

Out of more than 200 SaaS companies, number of them have incorporated outside, owing to the friction in doing global business from India. Software 1.0 policy doesn’t care for their issues. This loss can be plugged with Software 2.0.

MeitY should rise to the occasion and announce a macro level policy framework, without wasting further time. Action plans (schemes, programs, incentives and institutional setups) can follow on need basis and in phased manner. This is how it happened in Software 1.0 policy as well. A new institutional setup is required. ‘National Software Product Mission’ should be setup urgently to cater to emerging Software product industry.

‘Software product power’ is cardinal to retaining global Software ‘power’ tag. Globally Software product market is estimated to be $1.2 trillion by 2025. India needs to target for 10-15 % of this. At home front, India needs to create ~3.5 million new jobs by 2025. Choices are limited.

iSPIRT has been working with MeitY for last 2 years to persuade them for taking a stand for a national level product industry while the service industry keeps growing. A nine point strategy draft is under consideration. But it has taken lot of time. In hardware product space, we have National Electronic Policy 2012. A National Policy on Software Product will replenish the industrial policy basket of MeitY and usher in growth in new areas of both domestic and international trade.

“Mere incremental progress is not enough. A metamorphosis is needed. That is why my vision for India is rapid transformation, not gradual evolution”, said Prime Minister at NITI Aayog recently.

We hope the announcement of the long pending ‘National Policy on Software Product’ (NPSP) will soon be forthcoming. Only then will PM’s dream of rapid transformation, become a reality to catalyze an “Indian Software 2.0 industry”.

Main References used

1. Research article “Using Competitive Advantage Theory to Analyze IT Sectors in Developing Countries: A Software Industry Case Analysis”. By Richard Heeks, Development Informatics Group Institute for Development Policy and Management School of Environment and Development University of Manchester, Manchester, United Kingdom. http://itidjournal.org/itid/article/viewFile/228/98

Recurring Billing – demystified for SaaS companies

Abstract

For any SaaS Startup with India market focus, the biggest bottleneck today is recurring billing. It is not available as an open, over the counter service from payment gateways. Most startups have to work around to solve this problem. The workaround may be using an expensive international payment gateway or it may be incorporating a subsidiary in foreign geography. Many startups also move all out of India, if they can afford to do so. In the process India loses some good SaaS companies.

Reading into details, recurring billing is not banned by RBI in India. But, banks and payments gateways do not have the offering available over the counter. Complying with two factor authentication (2FA) and the associated risk of chargebacks are the reasons behind. The payment industry experts say, banks offer it but needs to cover their risk for chargeback scenarios. So, one has to negotiate with banks and therefore large players are able to avail these services.

To bridge the gap startups like Razorpay are building the aggregator payment platform that that can work between the SaaS startups and the Banks to offer recurring billing.

Since, it is not smooth enough, recurring billing is an area, which requires policy maker’s attention. To realize the full potential of a single unified market under GST, the ‘Digital India’ requires a more open, clearly defined and an enabling policy and procedure on digital payments, at par with developed countries.

This article is based on a deep dive into the problem of recurring billing, with experts from payment solution companies Krish Subramanian, Co-founder, Chargebee (Subscription Billing & Recurring Payments Software) and Kiran Jain of Razorpay (a payment gateway aggregator).

Embedded below is a hangout video with these two experts. You may like to watch the video and/or read the blog piece below (which is built on the conversation in the video).

Some terms used in online payment industry

Recurring billing

It is a subscription driven model of charging or collecting payment from customer. Both the frequency interval of charging and amount charged are fixed to qualify for recurring billing. Software as a Service (SaaS) companies are the biggest users of this service.

Merchant: A person or business who want to sell goods or services.

Acquiring Bank: It is the Merchant’s Bank

Card holder: The buyer who owns and uses a credit/debit/prepaid card etc. to buy goods and services

SaaS industry and status of recurring billing?

SaaS startups offer products or productized services in a subscription model that runs in a per user/seat at a fixed frequency say per month. In SaaS industry, the recurring billing is often at a low cost transactions e.g. $10 to $50 per user per month.

In developed countries like USA online payment gateways and payment aggregator offer these services. A startup in India can sign for the service from these international payment gateways (like 2Checkout and PayPal) sitting in India. This can be done with minimum paperwork and absolutely no hassles. But, the cost is almost double the cost of payment gateway services in India. The down sides are payments may not be real time. Also, currency conversion cost twice. Once, when the Indian customer pay in foreign exchange and again when the international payment gateway pays to the Indian merchant.

Problem is the Indian payment gateways do not provide the recurring billing option as seamlessly as foreign payment gateways. Hence, the need to go to foreign gateway, when an Indian SaaS company wants to sell to Indian customers.

Krish of Chargebee adds, “for SaaS companies a non-negotiable aspect to provide frictionless experience to customers is the ability to collect payments on month on month basis”. (please see the video)

Statutory position of recurring billing in India

If one reads through the RBI’s circulars on two factor authentication (2FA), there is no mention of recurring billing. The RBI’s communication vide RBI/2011-12/145 DPSS.PD.CO. No.223/02.14.003 / 2011-2012 August 04, 2011 covering card not present (CNP) transactions which includes online transactions as also the IVR transactions states following two conditions:

Based on the feedback from the stakeholders and keeping in view the interest of card holders the following directions are issued:

(i) It is mandatory to put in place additional factor of authentication for all CNP transactions indicated in para 4 of our directions dated December 31, 2010 with effect from May 01, 2012.

(ii) In case of customer complaint regarding issues, if any, arising out of transactions effected without the additional factor of authentication after the stipulated date, the issuer bank shall reimburse the loss to the customer further without demur.

For an avid policy interpreter this means 2FA is the requirement for every transaction. It is not a straight forward clear position.

Kiran Jain of Razorpay, reads in to the sentence of same communication, where it says, “The matter was discussed in a meeting of banks with the Reserve Bank of India on June 22, 2011 wherein it was emphasized by the Reserve Bank that while it was not advocating any specific solution in this regard,”. Kiran says, “From RBI perspective there is no restriction in India”. According to him recurring billing is allowed under RBI guidelines provided in first transaction 2FA is followed and there is no restriction even by banks. (please see the video)

If recurring billing is allowed why is it not available openly?

Banks have a risk in complying with the mandatory charge back, in case when customer files a complaint. The issuing banks are supposed to refund to customer in case complaint from the customer. Normally the risk is never transferred to the acquiring bank.

Kiran in the conversation talks about the lack of understanding on risk involved, by merchants in India. Banks needs to cover their risk through transaction fee. Merchants in India don’t want to pay high transaction fees, that can cover the risk involved in charge backs.

Banks are not willing to underwrite the risk for small players. This is why there are no readymade recurring solutions available in Indian online payments.

How can this risk problem be solved?

Kiran says, “the alternative is to create a partner in between the banks and the ecosystem of SaaS companies, who is willing to underwrite the risks”. Razorpay is one such player, who is attempting to solve this problem.

Why can’t a Startup go to Bank directly? What is the way out?

The problem in recurring billing is not only the payment gateway but also the management of the subscriptions. Baking systems are all legacy systems. They are not able to handle the dynamic situations. For example, if a customer lost the card, the new card information should be updated in time. Such gaps are filled by the layer created by third party Payment Gateway solutions.

Also, this further requires some subscription management systems in an online system. Krish calls this “billing intelligence”. This can either be provided by ready made solutions like Chargebee or can also be built in-house.

Startups can solve this puzzle by availing solutions offered by companies like Razorpay and Chargebee. Razorpay reduces the complexities of recurring billing on banking side. Similarly, Companies like Chargebee reduce the complexity of “billing or invoicing intelligence”.

What more can be done on Policy side?

Krish feels, if we engage with banks and banks can build a system that can underwrite risk for small players and also make Bank realize how service providers can help mitigate risk, there can be a chain built to see a successful recurring billing system in India, easily available to SaaS startups.

Kiran’s view is, from policy perspective not much can be done as RBI does not mandate anything specific. It has do’s and don’t type of framework. His view is charge backs are like non-performing assets (NPAs). So, large merchants in India will still get recurring billing solutions from many payment gateway solutions easily and will also have in-house capability to build billing and invoicing platforms.

Looking further (iSPIRT’s Views)

If one researches hard there is possibility to find payment gateways offering recurring billing solutions in India. However, there are lots of questions asked and it is certainly not available as an across the counter service and definitely not to everyone.

Aggregator service like Razorpay have a chance to fill this gap and they will offer valuable service much needed by Startups. A combination of solution like Raozorpay + Chargebee could solve the problem for many startups.

RBI has not banned the recurring billing. On other hand it has also not put the record straight. Going further, there is a need that RBI and Government of India recognize the importance of recurring billing in a digital economy. Once the need is recognized, a layer of reform in policy framework by RBI should be added. Clear regulation that covers all stakeholders as well as encourages banks to offer recurring billing solutions, is needed. A digitally signed online agreement that is backed up by a 2F authentication in first transaction should be enough to cover the paper formalities required for a fixed amount, fixed tenure (frequency of payment) transactions. The buyer of service can revoke the online service agreement online any time. Customer’s risk is therefore limited up to the time he opts out of the service agreement.

RBI will not take actions that promote an Industry. It is Government of India, who should create an enabling policy for SaaS companies. Ministry of Electronics and IT (MEIT) can carve out a scheme that can mitigate risk of Bank, in turn helping SaaS industry. Such things should happen under the National policy on Software product being considered by MEIT.

The bottom line is that the Indian businesses must have access to multiple choices of service providers for availing recurring billing services at a low cost per transaction with a well laid out fraud protection and complaint redressal mechanism.

Both GOI and RBI needs to work together in direction of removing the bottlenecks. India is unveiling a unified digital market with GST coming in. Without seamless digital payments not only we will fall short in our dream of creating a globally competitive SaaS industry but also a fully buoyant ‘Digital India’.

This is especially true for SaaS businesses. Our goals and endeavors center on user growth, delivering consistent value, and profitability. This again depends on the efficiency with which customers can be earned, and nurtured.

All this begs a question: how do you know and measure the most crucial KPIs to achieve said goals?

Well, I know this is subjective. Because it depends on where you stand and where your focus lies at any given point in time.

That being said, Google Analytics comes in handy no matter where you are as a company. And that’s precisely what we’ve set out to explore with the help of Dave McClure’s AARRR framework in an in-depth slide deck.

If you are at the helm of a small to medium sized business, Google Analytics just works, as it is a free/standard analytics tool that is easy to configure and maintain.

Although, when I was introduced to Google Analytics, I found it to be quite irksome to grasp for the following reasons:

1) There is a lot of generic material about Google Analytics on the internet, and its scope of use for a SaaS application is difficult to pin down.

2) Lack of actionable resources (what I really required wasn’t just a frame to understand the tool, but real lessons that I could put to test at my end).

Hence, with that in mind, I’ve put together a deck with things that I’ve learned over the last few months, that’ll (hopefully) give beginners a broad perspective on the use of Google Analytics for a SaaS business, and at the same time provide some actionables to get started.

As a startup founder or growth marketer, you obsess over metrics: what is my lead-generation rate, how many customers did I win or lose, how is my monthly revenue growing, or how many customer referrals did I get? Analytics is critical for your business, without which you’re flying blind. However, data overload is real and you might not derive the right actionable insights.

To simplify metric-driven growth for product startups, iSPIRIT, on 18th June 2016, organised a half day roundtable of 11 product startups in Pune. The roundtable was moderated by Paras Chopra, Founder, Wingify and Sanket Nadhani, Growth Marketer, Wingify.

The discussion was structured in a way where attendees spoke about the 3 metrics that are most important to them, an “uncommon” metric that they track, and their expectations from the roundtable. The format was kept fluid with attendees pitching in with thoughts and interesting ideas. At the end of this, all of us saw an exciting video about using Lean Analytics for growing your business.

Acquiring new customers is hard. Especially for newly born startups. The best way probably is to just throw mud everywhere and see where it sticks. Once you’ve identified a performing channel, or hopefully multiple channels, you build strategies around them to ramp up acquisition.

Invariably all the startups agree tracking the number of enquiries (opportunities) and their conversion rates across channels is crucial. Paras was of the opinion that keeping an eye on weekly trends on the performance of acquisition channels will help uncover tipping points of when the channel is about to take off or when it’s time to forget about a channel if it has not been performing for a while. To identify optimal acquisition channels, Sandeep Khode, WordsMaya, tells us to ask your customers where they came to know about you. Though it’s a manual process, it helps them to identify users’ exact search terms, which is very useful for keyword optimization. WordsMaya leverages Quora to acquire customers by answering questions or starting a topic.

Jayesh Kariya, VP Finance, TouchMagix, contributed an interesting idea that maintaining a trend of number of prospects lost every week is an eye opener. This lends the idea that your startup should improve its own performance week-on-week.

Landing pages and pricing pages plays an important part in customer acquisition. However, due to information overload, 55% percent of visitors spend fewer than 15 seconds on a new website. Optimizing landing page was a top priority for everyone. Paras told us that a landing page should tell a complete story; it should give all the information that the visitor wants in as few words as possible. Amit Mishra, CEO, InterviewMocha shared an excellent framework, HABITS, to design landing pages. He also says that inserting call to action buttons on your own blog posts gives a click-through rate of around 2%, effectively using your own website as an acquisition channel.

Activation

Oh! I got 1000 signups in a day but nobody used the product.

This sucks, right? To improve activation rates, answer this question: once someone signs up, how quickly can she actually use your product? In other words, how soon does she realise the product’s value proposition? If it’s not soon enough, the user goes away never to return.

The onboarding experience of a user should be smooth and, importantly, short. You should NOT ask a user to fill out a form with more than four fields. Some of the tactics and metrics that were discussed –

Vrushali Babar, Founder, Meatroot, a B2C business, says that it’s crucial for her to retain her customers. She says that sentiment analysis of what her customers are saying online is indispensable. She currently does it manually on Twitter or Facebook but using a tool like Sentiment140 or BuzzLogix could be useful.

A useful exercise could be developing a dashboard that plots the engagement of users with your product on a daily basis. The philosophy is that a customer who is not engaged will leave. Such a dashboard will give you a snapshot of when engagement of a customer is on the decline so that you can take proactive action before the customer cancels. Another useful metric, for SaaS businesses, is to measure the number of sessions for a user during the trial phase. This will let you know which users are more likely to convert to a paid subscription.

To demonstrate how important is customer retention, Sagar Bedmutha, CEO, Optinno Mobitech takes this issue to an obsessive level. When a user submits a rating of less than 4 on their app on the Play Store, he tracks the user, fixes the bug, and sends a test app to the customer! He says, this personal touch often makes the user change her rating and helps Optinno maintain good ratings, the primary driver of app installs.

Paras contributed a great insight on how to properly measure churn rates. He says, that measuring the average churn rate doesn’t help uncover the reason for the churn. Instead, you should do a churn cohort analysis, that is, measure the churn rate segmented by customer cohorts. Examples of cohorts could be the number of months a customer used the product before leaving, the specific features churned customers use, etc.

Let’s say you have 100 customers and 5 of them leave in a given month. Your churn rate turns out to be 5%. However, the graph above makes it clear that the churn is much higher for customers who are less than 6 months old after which the churn is much lower. This points to a problem with activation: customers drop off when they are not fully activated.

Revenue

I have over a 1000 customers, but I am not making any money.

A bad problem to have! Businesses should make money from the customers they serve. This, seemingly obvious, fact sometimes slips away when you are working on many things. Measuring how much revenue you’re generating month-on-month (monthly recurring revenue) is indispensable.

Not only should you track revenue growth, you should work towards increasing it in ways other than signing up new customers. A great way to do that for SaaS businesses is upselling. Upselling lets you get more revenue from one customer and help you define and build the whole product. Kaushal Sanghavi, co-founder, BreathingRoom takes this a step further by saying that maintaining a predictable revenue stream is important. He is trying various techniques and says that incentivizing customers to pre-purchase, or buying in bulk for future use, is showing a lot of promise.

Amit seems to have perfected the art of upselling. He says not to wait to build out a feature before upselling to your customers. Sell as soon as you have an idea. Doing so will give you insights on which are the features customers really want and help you prioritize your product roadmap.

Referral

How I wish my customers referred more customers to me!

A working referral system is what differentiates SaaS companies. An amazing referral system, like that of Dropbox’s Refer-a-Friend, is probably the easiest thing that can bring exponential growth.

Amit tells that monetarily incentivizing salespeople to follow up with their customers and ask them to write reviews on various web directories has worked well for him to acquire more customers. InterviewMocha, an online assessment software, stores email addresses of people that their system collects, follows them on LinkedIn, and when someone changes a job, reaches out to them to install InterviewMocha in their new companies. Though manual and time-taking, this method, I believe, justifies the ROI.

Final Words

There are a lot of metrics that you can track and you probably are. It’s easy to get lost. The video from Google Ventures that we saw makes a great statement: for a company of a type at any stage of the company, there is one metric that is the most important, which you can’t afford to not track.

At the end of the event, I caught hold of Sanket to pick his brain. One of the main questions I had was what does a founder do when he is just starting out and does not have too much data to derive insights from. Customer Interviews. When you’re small, you can afford to pay attention to each customer. In turn, those customers, often happy with the personal touch, will tell you what they want exactly and give you insights that no market research can.

Customer Interviews are tricky: if you don’t conduct them well, you won’t get the insights that you want. Or more dangerously, you will listen to what you want to listen and fail at validating your assumptions. Spend effort in creating good user interviews and refine over time.

I hope that this post gives you an overview of why metrics are important to grow your business, how to define appropriate business metrics, and learn how startups are already doing so.About the author – Siddharth Saha – a Product Marketer with an interest in full stack marketing. Questions? Criticisms? Insights? Shoot him an email on [email protected]

An Indian software company serving majorly clients in the US or Europe is not an unusual thing anymore. However, if anybody were to guess the location of the India office, a company that counts amongst its clients about 100,000 small businesses globally, they would most probably chose Bangalore or Hyderabad. However, Appointy, which is an advanced web-based scheduling software tool and has around 90,000 salons, spas, and dance and yoga classes as its clients in 100 countries does it out of Bhopal. Similarly Kayako, which sells support software to over 30,000 clients including NASA, Peugeot, Sega found its roots in Jalandhar, which as per their own website is “one of the least likely places to establish a technology start-up”.

The emergence of these companies from relatively smaller towns, highlight India’s comparative advantage in terms of ability to build high quality companies in the domain of Software as a Service (SaaS). The inherent model of the SaaS business does not require proximity to the end user. In the simplest terms, it is a software that can be accessed through a web browser, by paying a subscription, either on a monthly or yearly basis. The software is hosted exclusively by the provider, as opposed to being downloaded upon purchase and subsequently hosted by the client. The customer gains by spending less upfront, not having to maintain hardware and not worrying about upgrades & data security. Driven by such factors, the SaaS model is growing exponentially and the global market for 2015 stood at USD 31 billion (NASSCOM). The growth is expected to continue at CAGR of 18% to reach a market size of USD 72 billion by 2020. Another study by Google and Accel Partners estimates the 2020 market to be USD 132 billion.

The Indian SaaS landscape is expected to evolve even faster. The FY16 market is estimated to be USD 407 million, a 34% growth over FY15. This figure is expected to triple by 2020 growing at a CAGR of 27%, 1.5 times the global growth rate. It is easy to see why India is going to be a hotbed of activity for SaaS companies. The cost of product developers is one of the biggest items in a SaaS company’s P&L Statement. A software developer in India costs 25% of what a similarly skilled one based in the US would cost. India has an estimated 36,000 product managers, 25,000 SaaS engineers and 100,000 other engineers with the skills for building a SaaS product. Another critical factor is the adoption of mobiles as the primary device for accessing data. India being a mobile-first nation is well placed to ride this shift as its young companies are more flexible and can focus on mobile platforms.

Buoyed by these advantages, companies have been sprouting in every segment of the sector. NASSCOM estimates that there are around 150 Indian companies offering SaaS solutions. 40% of these companies have been incorporated after 2010. Customer Relationship Management (CRM), Content Collaboration and Communication (CCC) and Enterprise Resource Planning are the hottest segments accounting for more than half the market in FY16.

Growth in the domestic market is also expected to be a major boost factor for the Indian companies. A deeper dive into the key underlying sectors which are adopting SaaS brings even more attractive prospects to the fore. Healthcare, E-commerce, BFSI and education sectors have been the most targeted segments by emerging SaaS companies. Each of these sectors is expected to expand at a healthy pace in the near future riding on the overall economy’s consumption led growth. At 7.6%, India’s GDP growth rate for FY16 has been the highest in the last 5 years. Small and Medium sized businesses emerging in these sectors would be much more nimble and receptive of SaaS solutions to avoid upfront large capex on technology.

The investor community, financial and strategic, has also embraced the SaaS opportunity with both hands. A total of USD 650 million was invested in SaaS companies in India till 2014. The funding in 2014 is estimated to be between USD 170 million to USD 200 million. However, the funding skyrocketed in 2015 with USD 450 million in the first half of the year itself. Some of the most active investors who are backing SaaS companies India are as below.

The investors will have their hands full the short to medium term as most of the companies move traverse from Series A to B to C and so on. With companies maturing and cash balances building up, the sector is also expected start throwing up M&A opportunities much faster than any other sector.

The SaaS story hasn’t quite meant curtains for the traditional software licensing business model yet. Currently, SaaS commands only about 9% of the over Indian software market which is estimated to be USD 3.1 billion. However, Indian SaaS companies have already been able to create a market perception of building great products at lower cost. Currently, a large number of Indian SaaS companies would lie in the revenue range of USD 1 to 2 million. However, there are enough cases of rapid scaling up companies (such as Freshdesk, Capillary Technologies and CRMNext) to help us believe that we will soon see companies with multiple billion dollars in revenue emerging from India.

It seems there is still time before the Software as a service (SaaS) blooms well in the Indian domestic market. The biggest friction points are relatively low acceptability of online model, lack of quality internet penetration in country side and the unsupportive policy framework e.g. recurring billing, expensive payment gateway solutions and confusing indirect taxation in India. Owing to these bottlenecks, many SaaS companies relocated outside India or open a branch or foreign subsidiary.

iSPIRT has been pursuing a stay-in-India check list with Govt. of India, with following three top taxation issues embedded in it:

Removing confusion between ‘goods’ and ‘service’ tax on Software

Not treating software sales as royalty income and do away with TDS on sale of software

Start taxing online B2C sales by foreign companies

All three are relevant to the Software product Industry. However, the problem of ‘goods’ verses ‘service’ tax is intriguing to be solved and the subject of this article.

From tax perspective, many get carried away with the etymology of ‘Service’ in SaaS and believe service tax is the obvious classification. However, the classification under service alone, can’t be the most advantageous position for SaaS industry in a complex tax regime like India which is riddled with confusions.

This article attempts to explain this confusions of goods verses service tax effecting software product industry where SaaS is a special case in consideration.

Explaining the confusion between Goods V/s Service tax

The Indian tax system today classifies Software in following manner:

1. Treated as goods – has a tariff code associated (ITC HS Code)

Pre-packaged on media or paper license or PUK

Pre-packaged embedded with hardware

2. Treated a Service

Bespoke/Customized software development

Rest everything else that is not covered in a) above (SaaS falls here)

Those covered under a) above have a tariff code (ITC/HS Code) associated with them and hence fall under ‘goods’. The pre-packaged category (i.e. the Software products) have following tariff code assigned currently.

HS Code

Item Description

4907 00 30

Documents of title conveying the right to use Information Technology software

4911 99 10

Hard copy (printed) of computer software (PUK Card)

8523 80 20

Information technology software on Media

Same pre-packaged software downloaded ‘online’ is covered under service tax and is not treated as ‘goods’. Further, the tax system does not understand other models of SaaS, PaaS etc. All other categories of Software i.e. other than mentioned in a) above are covered under service tax by default under a logic of exclusion (not having covered under the tariff code list).

There is no guarantee that if the Service tax is applied there will not be a goods tax applied. VAT is applied in many cases based on interpretation in a way leading to double taxation. Even large players like Microsoft are not able to circumvent the double taxation. Their SaaS based offering (office365 bundled with exchange and storage on cloud[1]) are taxed differently at different point of times. Sometimes just the service tax and at other times service tax + VAT. You can hear a large number of use cases like this.

According to tax authorities in central government, the problem is solved simply by making goods and service tax rate one. They have solved the riddle by bringing in a notification for paying only one of the two at a given time excise duty/CVD or Service tax. But they have no remedy on states charging VAT. Whenever it is considered that the transaction implies ‘Transfer of right to use goods’ for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration, it is deemed to be a sale under Article 366(29A) of the Constitution of India. As a result Software even when defined as a services gets caught in 29A of (366) and VAT is applied based on how local authorities interpret a transaction.

The root cause of this confusion is that the tax regime has not given place to ‘intangibles’ at par with tangibles. As far as the tangibles trade is concerned, intangibles are treated as ‘goods’ as defined in 366(12) of the Constitution and their sale is covered by sale of goods act 1930. All that is defined as goods cannot be service by definition.

Does GST solve the puzzle?

Some people argue that these ‘good’ v/s ‘services’ tax problems will all vanish when GST is rolled out, based on the argument and assumption that the rate of tax in GST will be one.

GST is a ‘supply’ and ‘destination’ based tax system replacing the concept of manufacturing with concept supply of goods and supply of services. GST will also amalgamate most indirect taxes in existence at center and state. Both Center and state will have power to tax under GST for both goods and services. At present states do not have power to tax services.

One tax rate may be a necessary condition for attaining the neutrality and level playing field but not the sufficient condition.

Following are some reasons why even one rate GST is insufficient to solve the problem:

GST bill does not take cognizance of the root cause of absent definition of a ‘digital good’ i.e. including ‘intangibles’ at par with tangibles

The value chain of use and consumption of ‘goods’ and ‘services’ are quite different and hence will pose challenge in practice

The tax structuring is not done exclusively for the either software or the digital business. Also, Tax departments are prone to provide differential rates for new industry structures and business models for social needs under pressure of lobbying and differential tax rate may emerge for some segments of the Software Industry segments. The needs to tax new sectors of business and new models of business all arise in bits and pieces and then rules are overplayed above the basic tax structure, thus causing the confusion.

GST legislation is not clear on tax credit system in its completeness e.g. the inclusion of zero-rated supplies

The Clause (29A) of Article 366 has not been deleted in the proposed constitutional amendment and would need to be deleted as this would be redundant under the new concept where sales and deemed sales will be replaced by concept of supply or it may give rise to misuse under some pretext.

Any new statute has to be tested on ground it takes few years to evolve and align with ground reality. GST will be no exceptions.

GST bill has yet to be passed. After the GST bills is passed the rules will be framed under CBEC and it is expected that CBEC to be in its comfort zone will like to use existing frameworks and for Software product industry adoption of existing framework will not be helpful and it is imperative on us to suggest to government remedy for these long existing problems.

To remove the root cause of the problem, a clear distinction between a “product” and “service” or “digital goods” and “digital service” is needed.

In the previous blog ‘SaaS’ – the product advantage and need we have argued that the product side in SaaS cannot be ignored. Even the service component in SaaS is about using this digital (intangible) product. Let us understand the product/goods properties that are commercially viable and legally tenable.

iSPIRT has been pursuing application of a frame work “COG-TRIP Test” that can be used to define Software Products as distinct from Software services. A SaaS product can be mapped to the complete COG-TRIP test. Given below is the framework of COG-TRIP.
1. Countability – no of licenses/users/subscribers
2. Ownership and Intellectual Property Rights
3. Qualification as an Intangible Good
4. Tradability: The Software Products (Goods) can be sold through different delivery modes.
5. Right of service/Right of Use
6. Identifiability
7. Production/Development Cost: All software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value

In the legal framework the above definition of “Product” has to be mapped to “Goods” as defined in 366(12) of the Constitution and hence there is need for the definition of “Digital Goods” at par with constitutional provision of “Goods” in article 366(12) which further is related to the Sale of Goods Act 1930. This will also cover the article 366(29A) aspects.

Gradually the world is also moving toward the above proposed scheme of overlaying the existing structure with a clear definition of ‘digital goods’ and ‘digital services’. US has a “digital goods and services fairness act” pending to be passed by congress. Australia has come up with a new digital GST.

The clear definition of ‘digital goods’ and ‘digital services’ definition not only provide the ease of doing business but also the level playing field against the foreign companies under new emerging business models every day.

Concluding notes – Looking for a long term solution

In a previous blog on ‘SaaS’ – the product advantageand need we have made a case for SaaS industry to be a formidable part of the Indian Software product industry (iSPI). For SaaS Industry, the advantage is in favour of getting defined under product (digital goods) category as an industry. This also infers that SaaS itself is a “Product” that provides a services to businesses or consumers who may actually fall in any industry verticals.

The tax is applicable on a transaction and does not get defined based on sector or industry. Once SaaS is recognized as Product (intangible goods) the next issue to be solved is asking for one single clear tax on a transaction be it “goods” or “services” based on the transaction.

Hence three basic requirements for SaaS segment to get a boost are:

SaaS is identified as a product or digital good

There is clear definition of digital goods v/s digital services in tax regime

There is one single and clear tax on one transaction

Tax and trade are much related in promotion of an industry and we hope these concerns will be addressed by Indian government in near future. SaaS can become a segment that can bring India pride and has possibility of emergence of next google from India.

Footnotes

[1] Consider a real life used case. I am running an office365 email service, procured through an Indian partner of Microsoft and I pay service tax on the subscription. I went ahead and placed order for a new office365 (same service) for a different domain directly from Microsoft online, the invoice charges me 14.5% service tax as well as 5% VAT. I tried to get a quote from other partner of Microsoft and again I get a quotation for 14.5% service tax and 5% VAT. In the first case I am buying from a partner of Microsoft who is a hosting provider. In second case the partner is a usual Microsoft partner selling their products or services.

Now consider buying office365 (office 2016 1 year subscription) for desk top licenses and there is CVD + VAT, even when it is a mix of offering both Product and Service for online storage and fully installed office pack.

The above used case mentioned above is of the office365 business essential plan has all the components built in the exchange online, access to MS Office products online only, online storage etc. It actually carries the many examples of the MS Office 2016 offered as SaaS model, Exchange offered as an email service and Storage offered as a service.

Disclaimer: The above example is based on real life personal experience of the writer and has nothing to do with iSPIRT.

With ongoing expeditious advancements in communication, social media, cloud, mobility and related technologies – sales is on a continuous path for digital transformation. This is going to place inside sales teams at a strategic position in sales and marketing process, in terms of significance. A shift is being observed from field sales model to inside sales model which is attracting field sales guys towards inside sales jobs. Therefore, the Inside Sales industry is moving towards a revolution worldwide.

Inside Sales Teams to Play a Greater Role in Sales

Inside sales is quite strategic to India’s GDP growth. Indian BPO industry alone contributes 1% of India’s GDP where professionals are majorly involved in B2C processes including inside sales. IT/ITES and software companies have been early adopters of Inside Sales process for B2B leads generation. With digital sales transformation happening for the digitally dependent buyers, the inside sales teams are going to play a greater role in sales process, as more tasks of the marketing and field sales teams have come under the scope of Inside Sales teams.

SaaS India – Early Adopters of Inside Sales Technology

SaaS, Technology and Professional Services companies in the western world are the first ones to acknowledge a digitally connected buyer by adopting Inside Sales Technology. The traditional businesses like manufacturing companies in US are exploring how Inside Sales tech may add value to their sales process.

However, in the Indian market, mainly SaaS industry is at the forefront on trying their hands on advanced Inside Sales Technology for accelerated sales. The others in the technology industry are going to follow this trend in near future in India. Traditional industries are going to take some time to change their sales processes as their buyers are slowly becoming internet savvy for business purchases.

Inside Sales to Play Significant Role in SaaS India

As per Google Accel SaaS Report 2016 – SaaS India is expected to grow to $50 billion in next 10 years while Indian SMB SaaS is expected to rise from current $600 million to $10 billion in the said period.

SaaS industry has a strong need for inside sales professionals. As per the report, strong workforce in the BPO sector gives access to talent pool of around 6,20,000 Inside Sales professionals, out of which 1,20,000 are inside sales ready and 5,00,000 are skill ready.

I personally believe that 6,20,000 from the BPO sector, who are assessed as ready for SaaS as per report, need to be groomed for making them sales skill ready as only telecalling skills don’t make a professional acceptable for Sales Development Rep’s role in SaaS Sales.

Inside Sales Talent – A Key Challenge for SaaS India

SDRs are expected to understand the Sales Processes. They should have the knack of using Inside Sales Tools like Social Media, Email, Phone, CRM and other smart selling tools. The working environment of B2B Inside Sales teams is significantly different from BPO scenario, where the reps are much more controlled, the jobs are temporary, the performance metrics are more around calls numbers and talk time, the customer engagements are very short lived, and end consumers are served with products & services.

This vast difference would require a complete psychological shift in the skills of a BPO professional who aspires to work in the SaaS sales space. They would need to be trained on Inside Sales function from scratch to be helpful, empathetic, B2B marketing and sales process oriented, B2B product/services domain expert, and digital sales intensive to successfully become an SDR. SDR will progress to become an account executive with quota around end closures and finally managing SDRs.

Aspirants looking to fill Inside Sales Talent Gap

There is a need to align the professionals by training for B2B Inside Sales function to serve the evolving SaaS industry in India.

I am associated with AA-ISP, American Association of Inside Sales Professionals as the President for India Chapter. The mission of AA-ISP is to advance the profession of Inside Sales. AA-ISP Gurgaon and Noida Chapter is supported by Inside Sales Box to create an ecosystem for Inside Sales professionals for businesses.

If you are a BPO/ Inside Sales/ Marketing and Sales professional or a Technology Entrepreneur, who is aspiring to stay abreast with best IS practices, discover digital sales tools & technologies, and explore jobs and business opportunities locally and globally – I welcome you to be a part of AA-ISP India.

While open source software is a fairly well understood in concept, I am always surprised how little it is understood in practice. At a round table of young product companies last month, there were a lot of raised eyebrows and questions when I explained our open source way of working.

Jordan Hubbard, co-creator of FreeBSD and open source veteran, spoke on this topic at this year’s ERPNext Conference, and he basically said this, open source business is all about people. Since the product is free, you sell services around the product, which is your people. This is mostly true for the very large majority of businesses that have mushroomed around open source projects, providing installation, hosting, customization, maintenance and other services around the product.

But there is now a new variable in the equation, SAAS (or Software-as-a-Service). It has been already accepted that SAAS is the way software is sold today. Listed companies like SalesForce, Xero, Zendesk, Workday, NetSuite, Hubspot, Shopify are testimony to the success of SAAS products and the billions of dollars that get spent on SAAS products each year. What does the future hold?

As on-premise is slowly moving into SAAS, I believe that SAAS itself will move into open source. Since the unevenly spread future is already here, there are companies already successfully doing open source + SAAS like WordPress, Ghost CMS, Magento, ERPNext (disclaimer: that’s us).

Going open source is not easy. Business are built on the premise of transactions, and in open source, you have to be very open to giving and communicating without expecting immediate results. But once you cross a certain threshold, community participation can be extremely rewarding.

I am not advocating you open source your product today, but as Wikipedia has shown us, its only a matter of time before someone builds a mature open source product that might replace you.

Unfortunately there is no fixed answer. Problem with SaaS is that there are too many moving variables. LTV,Churn,ARR,ARPU etc. So its really hard to come up with one fixed number. So based on our experience and our product the following is a number we have come up with to set targets for our sales organization.

0.8x(x is the sales person’s salary)

So, a sales person should pull in 0.8x worth of MRR every month. Or 9.6x worth of annual contract values every month. This is the number from which they start getting incentives.So for example a sales rep getting around 18 lakhs salary should pull in around Rs.1,20,000 MRR every month. If he pulls in 30,000 MRR(0.2X) he will be just covering his base salary. If he pulls in 75,000(0.5X) he will be covering the organization costs. And only if he pulls in anything above that will the company move towards profitability. And only when the company is profitable will the sales get an incentive.

Obviously there are a lot of assumptions made to arrive at this number. We are assuming the LTV to be around a year and churn is also very low. You can find a spreadsheet with some numbers here. You can modify the variables to fit for your organization.Just open SaaS Sales Targets and play around with the values to see the numbers. You can also download it and modify it as you see fit.

Since we started a sales organization a couple of years ago we have been experimenting with different variables and this is a good rule of thumb to follow for setting sales targets. Please comment on what your experience has been. Is our model too tough on sales guys or too easy. Hopefully we can all come out with a comprehensive model for sales in SaaS in India.

Tell us about RippleHire – your journey so far…

We help companies automate their talent sourcing by leveraging their employee pool.

We spent our first year working with the ecosystem getting feedback and crowdsourcing problems on hiring. Only then did we begin our sales process and that too with the top global brands, so that we get the right folks to get the product experience and results right.

The journey has been challenging and exhilarating – full of the regular highs and lows that every entrepreneurial journey has, along with the crazy experiences and insights that come with building a global company.

What challenges did you face during the course? Any learnings from that?

It was initially tough for us to go after brands like Adobe, McAfee, Capgemini. Convincing them to be among your initial customers was not easy. People love social proof and we will be eternally grateful to our first set of customers who have co-created this innovation with us and helped provide the social proof.

If I were to do one thing differently, I would focus directly on global customers.

Do you think that getting access to/finding investors is difficult in India?

I don’t think getting access to investors in India is difficult at all. We have always believed that investment is a by-product of building a good scalable business. Our focus as a team has been about building a product that adds value to our customers (the real proof came through when they paid).

I always recommend startups to not focus on building a business for investors but for customers. Do take the inputs that the investors give you on the space and the approach. Factor that in. However, build the business to add value to customers.

Our approach has meant that we have always received inbound interest from investors. So, I think getting access to investors is definitely easy if you focus on building a good business.

Why did you consider participating in InTech50?

We wanted to get validation from Indian and Global CIO’s on our concept. It was wonderful to have multiple CIO’s stop by our booth post our presentation and share their hiring challenges.

It was a great way for us to get feedback on RippleHire. Not only that, it helped us bag customers too.

How has getting shortlisted for InTech50 helped you?

Being recognized as one of the top 50 innovative software companies coming out of India helped us a lot from our sales standpoint. People in India, and globally, take you seriously especially when the validation for the software comes from CIO’s.

We have also grown by 10X in the past year.

Who were the people you connected with as a result of InTech50, and can you give us a few specific examples of what those introductions translated into?

We were able to get feedback from multiple CIO’s and introductions to prospects like Happiest minds and Ascendum through this platform. Ascendum signed up RippleHire as a customer as well.

What advice would you give to other emerging companies as they plan their scaling up?

Every startup is different and has different challenges when it comes to scaling up. I think it is important to get the following right when it comes to scaling up –

Your customer support and product experience should be consistent. Think of a Pizza Hut. As they scale customers, it is important that the Pizza quality stays the same.

Scaling well is about putting the processes in place that the experience stays the same. Getting this in place requires thinking of your engineering, sales and support teams in the form of units. Once you get one unit right in your support engine, scaling is about replicating that unit.

One recommendation I would give out to the InTech50 participants this year is that – research the sectors that are of interest for you. Hiring in our case is sector agnostic. It would have helped us if we had picked three sectors and focused on attendees from that space.

In case you aren’t updated on the current affairs, 2014 is shaping up to be a controversial year; and we’re not referring to Justin Bieber’s antics, Mr. Kejriwal’s dharnas or Mr. Modi’s development stories. Instead, a new contention is brewing in the annals for us which is every entrepreneur’s one of the worst nightmare: deciding how much to charge for your product 😉

Pricing is one of the most difficult things to get right. There are several questions that come to us, and its good if we can get an answer for each of them. Should my MVP be free? When should I start charging? How much should I charge? Will I lose my first customer, if I start charging higher? Will the freemium model work?

We get into these FUDs(fears, uncertainties, doubts) because whenever you ask for money, there is friction, which cannot be removed, it can only be minimized. The best way to overcome these objections is to prevent them from happening. Well, I tried to study, how other people, were addressing the same problem, and tried to come up with one for my own product. Its taken more than 6 months, and hours of brainstorming with few of the amazing folks for me to reach here. I will try and summarize few of them.

The trouble with software pricing

Pricing is a basic economics thing. Unlike traditional manufacturing products, where there is a fixed cost of raw material, labour, transportation etc. a cost price for each unit is pretty clear. On this objective value for each of the unit, the sales team, tries to create a perceived value of the product, based on reference points of competing products, and after a basic survey of the demand curve, a price point is generally arrived.

For softwares, the case is slightly different. After break even, the price of a new unit, tends to be negligible. So defining an objective value for each unit becomes tough. Chances may be, the product you are creating may not have a direct competitor, or if there is an alternative it might be free. In that case, extrapolating from a reference point becomes tough.

The price tag you put on your software, is one of the most challenging thing to get right. Not only, it keeps you in business, it also signals your branding and positioning. Iterating on the product, is far more easier than on the price. Lowering the price is generally easy and appreciated but it takes to be an Amazon to demonstrate it profitably. Increasing the price, is tough, because it adds to the churn. So doing the most you can, to get it right, generally accounts for a successful business in making.

Addressing few of the initial Questions

Should I charge for my MVP?

Despite validating the problem that I was solving, and clearly mentioning the price point during the customer interviews in my initial stages, I used to be afraid of asking money for the product, because I had a fear, the product is not ready, the Minimum Viable Product was minimal, I was not sure of the hidden bugs and I was not sure, how deeply have I solved the problem.

The two thought leaders Steve Blank and Sean Ellis had the following to offer –

Steve mentions pricing to be one of the important questions in your customer interview, this helps you validate that the product’s value proposition is compelling enough for them to pay, and the problem is worth solving. Once the MVP is built, Steve asks you to sell it to your early customers. There is no clearer customer validation than a sale.

Sean Ellis, removes pricing to the post-product/market fit stage:

“I think that it is easier to evolve toward product/market fit without a business model in place (users are free to try everything without worrying about price). As soon as you have enough users saying they would be very disappointed without your product, then it is critical to quickly implement a business model. And it will be much easier to map the business model to user perceived value.”

Well both of them have their own merits. So I did an A/B with my customers. I offered two of them, the software for free, and mentioned to the other that we will be charging. The folks who were given free product, did not use it and it got shelved, whereas the ones who were paying, had feature requests, reported few of the bugs they came across, solving these bugs, and responding pro-actively helped me develop better relations with them. The free users asked for additional features, whereas the paying users asked for improved features, which eventually meant a better product.

Personally, I align more towards Steve’s side, because, the best validation you can get for products value prop. is the customers’ bucks, and if it gets figured out initially, nothing like it.

Should I go for a freemium model?

Lincoln Murphy has a white paper on The Reality of Freemium in SaaS which covers many important aspects to weigh when considering Freemium, such as the concept of quid pro quo where even free users have to give something back. In services with high network effects, participation is enough. But most businesses don’t have high enough network effects and wrongly chase users versus customers. The notable point in the above paper is – “Freemium is a marketing tactic, not a business model.”

People have struggled with freemium, and dropped it, with few exceptions of Wufoo and FreshBooks. The conversion for free to paid accounts has been relatively low even for Pandora, Evernote, and MailChimp. 37signals has greatly deemphasized their free plans to almost being fine print on their pricing pages.

Its not impossible to launch successfully with a free plan but things can get easy, when we simplify freemium, not look at it as a business model, with the only objective for it being to get people using your product in a manner that makes them want to pay for more advanced features.

What should I consider while pricing my software?

The amount of money a customer is willing to pay, primarily depends on the following two factors –

Value extracted from use of the product

Emotional Willingness to Pay, which is an after effect of perceived value of the product.

And hence, two of the most obvious pricing strategies are –

Pricing based on the value provided

This is customer-first strategy. The amount of value each customer gets out of using Sosio, corresponds with the amount they pay us. Tried doing it, but devising an excel sheet, where in we could go and show, that you used sosio for X, and it increased your value Y times, is something, we are yet to find.

Pricing based on cost

This strategy takes care of our engineering team, sales cost, server and other rentals. This is generally intuitive from an engineering perspective. Pricing based on the number of accounts, the amount of data that is processed and saved, give us a good number, as to how much we should charge.

But the above approach makes it a uni dimensional pricing strategy. Our product is not just the product, its the customer support, its the number of users, its the problem that we are attempting to solve. The Quality of Support we provide, the response time of the support, Email Support versus phone support versus in person support, number of support incidents, product features and depth of usage are other metrics are other dimensions to reflect upon while deciding the pricing.

There are several params, to consider, and you can go on complicating your pricing and creating complex tiers. Even, I was doing one, till I read this post by Dharmesh Shah, and how he randomly arrived at a price of USD 250. I could have gone for a ballpark of maybe 20k INR, but here is how I arrived at what I arrived – I had few features, which other softwares, were providing as well. I have tied down features, uniquely, but my software, as of now, lacks the depth that these enterprise softwares offer, primarily for 2 reasons –

those features will add to the complexity of the product and cost.

the customer segment, I am targeting, does not require such depth.

What I tried was, brutally trimmed the price 10 times, of each of the features, and talked to customers. They were not willing to pay that much, but because I wanted to get started, I reduced it 50% further, the ones who were, happy, continued, the rest were a good bye.

With subsequent improvisation of the product, the prices will increase, and we will keep iterating on it.

Another advice, I got, while I was discussing my pricing strategy with Prof. Prem was to charge for the service and strategy. Well I don’t want to go into the details of how, an analogy can be if you are selling Adobe Photoshop, reduce the price of software, and charge for educational offers. It is working for me, two of my customers are happy with it.

Deciding a pricing tier

The four things to be taken care of, while deciding on pricing are –

The price tier should be simple(Mixergy just uses the names of the plans as calls to action)

An easy way of arriving at the tier is, creating customer persona, and segregating them.Your pricing tiers are a visual representation of where your buyers fit in your business model, and each tier should align to one type of customer.

Tiers makes sense for a lot of startups. But as of now, we are doing without it. Because based on the 50 customers I talked to during the sales process, most of them, got stuck, while I was explaining them the pricing model. If you’re a startup (or any software company) consider if your customers really need the additional pricing levels.

To end it all –

“Although scientifically purer, it often doesn’t make sense to change a single variable at a time. Theoretically, you shouldn’t change the price of your product, your discounting strategy and the types of bundle that you sell, all at the same time. But practically, it can be the right thing to do. It’s more useful to fix the problem than to understand why it’s broken. When a scientist goes on a blind date that doesn’t work out then, in theory, he should fix one variable at a time, and re-run the date. first, he should change the partner but go to the same film and buy the same flowers. Next, he should keep the partner the same, vary the film and keep the flowers the same, and so forth. but the pragmatist in him will, or should, change the girl, the film, the flowers, and buy some new clothes and shave too. If it works, he might not understand why, but at least he’ll have girlfriend.” – Neil Davidson

And this awesome piece by Seth Godin –

Go ahead and act as if your decisions are temporary. Because they are. Be bold, make mistakes, learn a lesson and fix what doesn’t work. No sweat, no need to hyperventilate.”